In brief

Over the last few months, the United Arab Emirates (UAE) have made a few legislative changes in relation to the Ultimate Beneficial Ownership (UBO) regulations as well as the associated administrative penalties, with the issuance of:

1. Cabinet Resolution No. 109 of 2023 on the Regulation of the Real Beneficiary Procedures (the “New Resolution“), which came into effect on 16 November 2023 and superseded Cabinet Resolution No. 58 of 2020. The New Resolution applies to all corporate entities incorporated in the UAE mainland and in the non-financial free zones (or “Commercial Free Zones“);
2. Cabinet Decision No. 132 of 2023 (the “New Decision“) relating to the administrative fines for violations of the New Resolution, which was issued on 15 December 2023 and superseded Cabinet Decision No. 53 of 2021.

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Under the previous Cabinet resolution, the main challenge that corporate entities and the authorities faced was in relation to identifying the UBO in entities that adopt complex structures and have multiple layers of ownership or that are ultimately owned, for example, by a trust, foundation or a private equity firm. The New Resolution has introduced amendments and updates to the requirements for the beneficial ownership procedures with the aim of providing some more clarity in light of these challenges.

The New Decision has also been updated to align with the New Resolution and includes a penalty for failure to disclose the various entities in the chain of ownership in the case of complex structures.

With the experience gained by the authorities in the application of the previous Cabinet resolution, the New Resolution is anticipated to be better equipped to address the complex structures and needs of businessess.

Key takeaways

1. All entities in the UAE, both in the mainland and Commercial Free Zones, are subject to the New Resolution with the exception of:
   1. companies owned by the Federal or local government and their subsidiaries;
   2. entities incorporated in the financial free zones (Abu Dhabi Global Market and Dubai International Financial Centre); and
   3. governmental partners – an exception that is newly introduced and defined in the New Resolution as a Federal or local government that contributes or owns shares in the company.
2. The New Resolution keeps the same disclosure requirements for mainland companies and companies set up in the Commercial Free Zones that were provided in the previous Cabinet resolution.
3. The New Resolution introduces a discretionary right for the relevant company registrar and licensing authorities in each relevant jurisdiction (the “Registrar“) to determine the beneficial owner by taking into account a risk-based approach in the case of complex structures.
4. Under the New Resolution, each relevant Registrar is now required to ensure that each entity within its jurisdiction is not misused for the purposes of money laundering and financing of terrorism through taking certain measures as set out in the New Resolution.
5. The New Resolution also introduces a Supreme Committee responsible for the supervision of anti-money laundering strategy and combatting the financing of terrorism.
6. Similar to the previous Cabinet decision, the New Decision outlines various administrative penalties for different violations of the New Resolution. These penalties range from written warnings to monetary fines. The New Decision, however, grants a new right to the relevant Registrars to temporarily suspend commercial licenses or close entities in the case of repeated violations (for the third or subsequent offences) until the fine is paid.
7. The New Decision has also clarified the description of the various penalties and, in some cases, divided the penalties set under the previous Cabinet decision into separate more itemized violations. The New Decision also places a 14-day time restriction in which the entity would need to respond to any requests for further information from the relevant Registrar.
8. The New Decision also includes a new penalty which relates to the failure of an entity to disclose the layers of the ownership in complex structures.

In depth

Determining the Beneficial Owner

The definition of the beneficial owner of a company remains the same under the New Resolution and states:

1. any natural person who ultimately owns or controls or has the right to vote over at least 25 percent of the company’s share capital, whether through a direct or indirect chain of ownership or control, or any natural person who has the right to appoint or dismiss the majority of the directors of the company;
2. if no natural person meets the criteria under point (i) above or if there are doubts as to the identity of the beneficial owner, the beneficial owner shall be any natural person who controls the company by other means of control; or
3. if no natural person is identified or who meets the criteria under points (i) and (ii) above, the beneficial owner shall be the natural person who is holding a senior management role in the company.

While the New Resolution maintains the same definition of a beneficial owner, it gives the Registrar the discretion to determine the beneficial owner by taking into account the risk-based approach, especially in complex structures which might aim to conceal the identity of the natural person who owns or controls the entity.

Addressing AML Risks

Under Federal Law No. 20 of 2018 on Anti-Money Laundering (the “AML Law“), corporate entities are obliged to disclose any individual ownership (whether beneficial or actual) in an entity which owns directly or indirectly 25 percent or more of the company, to the relevant regulator. The UBO regulations were issued further to support the AML Law.

The New Resolution introduces a Supreme Committee responsible for the supervision of the anti-money laundering strategy and combating the financing of terrorism. It also includes a provision on the establishment of a unit in each Registrar, which is responsible with implementing policies, procedures and requirements for combating money laundering crimes, financing of terrorism and the financing of illegal organizations in accordance with the provisions of the AML Law.

Along with the abovementioned discretionary right, under the New Resolution, each Registrar is obliged to apply a risk-based approach to ensure that each entity registered in its record is not misused for the purposes of money laundering and terrorism financing crimes through taking the following measures:

1. annually classifying, assessing and mitigating potential risks related to money laundering and the financing of terrorism operations;
2. taking the necessary measures to reduce these risks and prevent their occurrence through assessing the risks and verifying and monitoring the entities; and
3. implementing the procedures required for risk management, and ensuring their effective implementation.

Other notable amendments

The New Resolution keeps the prohibition on the Registrar and the Ministry of Economy from disclosing the data of the beneficial owner or the partners/shareholders unless they obtain written approval from the beneficial owner or the nominal management member. The disclosure obligations relating to combating money laundering crimes, financing of terrorism and financing of illegal organizations, also remain in place. However, an important exemption was added in relation to the disclosure obligations stipulated in the international laws and agreements with the UAE in relation to exchanging information on tax matters.

The New Resolution further elaborates on the definition of the “Nominal Board Member” which is now defined as “any natural person acting in accordance with the directions, instructions or will of another person, [he] is officially appointed or holds a position in the juristic personality and usually represents shareholders, members or any other relevant entity”.

Finally, a revised article is included in the New Resolution concerning the grievance procedures on the administrative penalties that the Registrar can impose on violators. Companies now have the ability to request the suspension of penalties through filing a grievance to the grievance committee, which must then issue its decision within 45 working days.

Disclosure requirements

Similar to the previous Cabinet resolution, the New Resolution requires entities to comply with the following:

1. All companies and other entities (as the case may be) must continue to keep at their registered office in the UAE:
   1. a shareholder register;
   2. a register of beneficial owners; and
   3. a register of nominee directors.
2. Entities must file the necessary information relating to the shareholders and beneficial owners with the relevant Registrar within 60 days from the date of enforcement of the New Resolution or from the date of the registration of the entity in the UAE¹. The entity must provide any additional data that the Registrar requests within 14 days from the date of request.
3. Entities must notify the Registrar of any change or amendment to the information provided within 15 days of such change or amendment.
4. Entities are required to designate an individual residing in the UAE whom the Registrar may contact in relation to any disclosure requirements, and shall provide the Registrar with their address, contact details and a valid copy of their travel document or identity card.
5. Each entity must take reasonable steps to ensure transparency, obtain accurate information regarding the beneficial ownership, and update the information on the registers on an ongoing basis.
6. Entities registered in the UAE and which are owned by a company listed in a regulated stock exchange that imposes requirements to ensure sufficient transparency of the beneficial owner, shall be exempt from maintaining the adequate and up-to-date data in respect of the beneficial owner.

To speak with us in relation to the UBO regulations or for any assistance with preparing the relevant registers and filing with the Registrar, please feel free to contact one of the lawyers above or your usual Baker McKenzie contact.

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1 All companies and other entities in the mainland of the UAE and the Commercial Free Zones should have already declared the real beneficial owner to the relevant authority, given that the previous resolution was issued three years ago and the relevant licensing authorities had imposed some sanctions against the violators of that resolution.

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